M&R to sell civil engineering unit as it agrees to settlement deal with government

13th October 2016

By: Terence Creamer

Creamer Media Editor

  

Font size: - +

Construction group Murray & Roberts (M&R) has confirmed its full participation in an agreement unveiled together with government on October 11, allowing for the settlement of potential claims arising from its much-publicised transgressions of South Africa’s competition laws. In return, the JSE-listed group has made various commitments, including a promise to dispose of a “meaningful interest” in its construction unit to a black-owned contractor.

M&R was one of 15 firms to conclude settlement agreements with the competition authorities in 2013, following the so-called fast-track settlement process – a process initiated by the Competition Commission in 2011, after it emerged that the construction sector had engaged in widespread collusion, particularly in relation to roads projects as well as projects associated with the 2010 FIFA World Cup. The companies were collectively fined R1.46-billion, with M&R’s portion of the penalty set at R309-million.

However, the South African National Roads Agency Limited (Sanral) had subsequently launched civil proceedings to recoup overpayments arising directly as a result of the prohibited practices.

M&R told shareholders in a statement that it had resolved to participate in a subsequent settlement agreement with government to address all claims by identified public entities, including Sanral.

M&R reported that negotiations were at an “advanced stage” with a prospective buyer of the company’s infrastructure businesses, which, once consummated, would result in its exit from the general building and civil engineering sector.

The proposed disposal was signalled by CEO Henry Laas in August, when he released details of a board-sanctioned plan to reposition the group as a multinational project company, focused on oil and gas, underground mining, as well as power and water.

Laas reported that the decision to exit civil engineering and building arose from a two-year strategic review by the board, which concluded that further restructuring would improve prospects for higher financial returns, despite the cyclical nature of the natural resources markets being targeted.

The disposal of the infrastructure units, meanwhile, would result in the creation of a leading black-owned contractor, whose prospects would be enhanced by the procurement reforms being pursued by government, which included possible ‘set asides’ for black firms.

M&R was not alone in seeking to align its civil engineering and building interests to a transformed market dynamic, with rival Aveng announcing earlier that it had concluded a binding agreement to sell a 51% beneficial interest in Aveng Grinaker-LTA to Kutana Construction for a maximum of R756-million. Kutana Construction is a black women-owned and -led business owned by the Kutana group, which is described as a Pan-African investment company.

As part of the October 11 settlement agreement between government and seven listed construction companies it was agreed that the companies would develop and/or mentor up to three emerging contractors to ensure workflow equivalent to at least 25% of their yearly construction turnover. Alternatively, they should dispose of not less than a 40% in their respective civil engineering and general building construction businesses to enterprises that were more than 51% black-owned, -managed and -controlled.

“As previously announced, the company is in negotiations with a prospective buyer relating to the potential disposal of 100% of the company’s infrastructure and building businesses to a black-owned purchaser and will be exiting the general building and civil engineering sector. Negotiations are at an advanced stage,” M&R said.

Also agreed is that, over the next 12 years, M&R will contribute its portion, or R21.25-million, of a collective yearly payment of R125-million into a fund to support transformation and skills development. Over the period, R1.5-billion will be injected into the fund, which is to be administered by an agency appointed by the National Treasury.

The first payment would be made in two tranches following the agreement becoming binding – an event that would be triggered by Sanral withdrawing its current claims against the companies. Thereafter, each subsequent annual installment would be payable on July 1 of each year to 2027, by which time M&R would have contributed R255-million to the fund.

Edited by Creamer Media Reporter

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION